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How important are earnings announcements in China?

Author

Listed:
  • Liping Zou
  • William Robert Wilson

Abstract

Purpose - This paper tests the information efficiency of the Chinese stock market to judge if it contravenes theFama (1965)efficient market hypothesis. Following China’s stock market reforms the market has grown in international importance, however many find information difficult to obtain and interpret. Design/methodology/approach - The relative importance of earnings announcements is quantified using cross-sectional regressions of calendar-year annual returns R_i on returns in the four quarterly earnings announcement windows return R_j. The metric developed by Ball and Shivakumar (2008) andBasuet al.(2013)is used to determine the level of new information contained in earnings announcements. Findings - Analysis reveals earnings announcements contain little new information of value, thus demonstrating the Chinese markets are not informationally efficient. Therefore, investors cannot automatically assume assets are always correctly priced, as they are in other established markets. Originality/value - Major structural changes were made to Chinese equity markets in 2004, with the introduction of the Qualified Foreign Institutional Investors scheme. At the same time, firms were required to make earnings announcements on a quarterly basis. This paper is the first to test the impact of these changes on the information value of earnings announcements since the changes.

Suggested Citation

  • Liping Zou & William Robert Wilson, 2017. "How important are earnings announcements in China?," Pacific Accounting Review, Emerald Group Publishing Limited, vol. 29(3), pages 380-396, August.
    • Handle: RePEc:eme:parpps:par-02-2017-0011
    DOI: 10.1108/PAR-02-2017-0011
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    More about this item

    Keywords

    Earnings announcement; Market efficiency; Information efficiency; G14; G15; G18;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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